1 | FEBRUARY 28, 2013

HKS Negotiates $120M Loan from Goldman Sachs for 12 East 88th Street Acquisition

In one of its largest brokered deals in the last year, HKS Capital Partners has ar-ranged a $120 million loan from Goldman Sachs for Simon Baron Development Group’s acquisition of 12 East 88th Street in Carnegie Hill, Manhattan.

Ayush Kapahi, a founding partner at the boutique brokerage firm, negotiated

the three-year loan out of HKS Capital’s Man-hattan office, Mort-gage Observer Weekly first learned earlier

this week.SBD acquired the property from

Nostra Realty, a New York-based real estate company run by the Kwiat and Ferman fami-lies, for $105 million earlier this month. Nos-tra had owned the building since 1968.

SBD President Matthew Baron said the development company plans to convert the

13-story, prewar rental building located be-tween Fifth and Madison Avenues into high-end condominiums—one of the latest such conversions as more owners of Manhattan real estate look to maximize profits with lux-ury condo developments.

“HKS was instrumental in helping us se-cure the financing for this complex deal,” Mr. Baron said. “Ayush and the HKS team were there every step of the way.”

The Rosario Candela-designed building has 85,839 square feet of residential space with 65 apartment units and 1,800 square feet of office

space.“Obtaining nonrecourse financing for this

condo conversion transaction reiterates that the capital markets are very much alive and willing to take risk for the right asset and the right sponsor,” Mr. Kapahi said.

Icon Realty Takes $60M Mortgage On Upper East Side Building

Residential developer Icon Realty Man-agement has closed a $59.9 million mort-gage tied to the acquisition of 1556 Second Avenue on Manhattan’s Upper East Side.

Icon affiliate 1556 Realty Corp. bought the mixed-use property at the corner of 80th Street for $7 million and closed the loan on Jan. 29, public records show. M&T Bank financed the mortgage. The bank de-clined to comment. Icon did not return re-quests for comment.

A person familiar with the transaction said the disparity between the loan and the sales price was for additional financing to

The LEAD

In This Issue

1 HKS Negotiates $120M Loan from Goldman Sachs for 12 East 88th Street Acquisition

1 Icon Realty Takes $60M Mortgage On Upper East Side Building

3 Mesa West Finances San Jose Office Complex Acquisition

5 Signature Bank Provides Acquisition Financing for Harlem Office Property

5 CBRE Secures $20.5M Loan for N.C. Office Portfolio

5 Greystone and Quilvest Launch Multifamily Investment JV

7 Walker & Dunlop Refinances California Multifamily Community

7 Canyon Capital Lends on Texas Power Center

“We will let the market get away from us if we feel like it is getting too

frothy.” —Michael McRoberts From Q&A on page 11

The Insider’s Weekly Guide to the Commercial Mortgage Industry

MOW EXCLUSIVE

See Icon... continued on page 3

2 | FEBRUARY 28, 2013

Relationship Driven.Execution Focused.Only Meridian Capital Group’s powerful � nancing relationships can consistently achieve the unparalleled results our clients require.

This transaction was negotiated by:Carol Shelby, Managing Director

1 Battery Park Plaza New York, NY 10004 | 212 972 3600 | www.meridiancapital.com

$100,000,000Permanent Financing

Meridian Capital Group, LLC

West 34th Street

MOW - $100MM - West 34 St - C. Shelby - 2-21-14 v2.indd 1 2/21/14 1:52 PM

3 | FEBRUARY 28, 2013

acquire nearby properties. That person said it was not a construction loan.

Icon has been an active buyer in the area. In 2012, it bought 1538 Second Avenue for $12.7 million, 1544 Second Avenue for $8 million and 1494 Second Avenue for $7.8 million, according to property records.

Italian restaurant Divino was a longtime tenant at 1556 Second Avenue but closed ear-lier this month. “Because of special circum-stances and after 37 years in business, we decided to close,” a sign on the building stat-ed. Restaurant owner Mario Balducci could not be reached for comment.

Icon is leasing the building’s 1,700-square-foot ground floor and 1,700-square-foot base-ment for $27,000 per month, according to its website. The 5,383-square-foot building also has six residential units.

1556 Second Avenue is near the future 86th Street station on the upcoming Second Avenue subway line. Other developers have targeted the neighborhood with the expectation that proper-ty values will rise with the arrival of a new tran-sit option. The median listing price of Upper East Side apartments that went into contract in the fourth quarter of 2013 rose 28.5 percent to $1.2 million, compared to the prior quarter, ac-cording to data from StreetEasy.

Icon has not filed new construction plans for 1556 Second Avenue or the other three properties it acquired last year with the De-

partment of Buildings.Although Icon has yet to move forward with

a new development, it has considered build-ing on the site in the past. In a 2009 court fil-ing in the New York State Supreme Court, prominent architecture firm Robert A.M. Stern Architects claimed that Icon owed it $497,429 for design work for “a condomini-um building located at the northeast corner of 80th Street and Second Avenue. Icon de-nied the allegations, and the case never went to trial, court records show.

Icon Realty, led by Terrence Lowenberg and Todd Cohen, built the Costas Kondylis-designed luxury condo at 985 Park Avenue in 2011. The developer has also purchased high-profile residential properties includ-ing the former home of painter Judith Roth-schild at 1110 Park Avenue and the Malcolm S. Forbes townhouse at 11 West 12th Street. —Roland Li

Brookfield Asset Management has closed on a $73.5 million first mortgage from Mesa West Capital to acquire and renovate an eight-building office com-plex in San Jose, Calif., Mortgage Observer Weekly has exclusively learned.

The 460,000-square-foot portfo-lio, known as Rio Robles Technol-ogy Park, is 70 percent occupied. Tenants include technology companies Hitachi and F5 Networks.

The five-year mortgage closed on Feb. 14, said Steve Fried, a principal of Los Angeles-based Mesa West. Rob Rubano and Greg Stampley of Eastdil Secured arranged the mortgage.

Rio Robles Technology Park includes one-story and two-story buildings be-tween 32,000 square feet and 87,000 square feet. Asking rents in the properties range from $1.50 to $1.80 per square foot, Mr. Fried said.

Brookfield plans to renovate the offices, which include lab space for research and development, in order to increase rents. The company will likely try to sell the portfolio for a profit near the end of the

five-year term, said Mr. Fried.Toronto-based Brookfield Asset Man-

agement manages around $183 billion in assets and owns 50 percent of Brookfield

Office Properties.The San Jose office market has

benefitted from cheaper rents and higher availability com-pared to the nearby San Fran-

cisco market, which is popular with technology tenants. In November, the U.S. Patent Trademark Office leased a 40,000-square-foot office in San Jose’s City Hall building, choosing it over pric-ier space in San Francisco, according to reports.

The South Bay and San Jose office mar-ket had a vacancy rate of 10 percent at the end of the fourth quarter of 2013, com-pared to San Francisco’s 9.2 percent va-cancy rate, according to CoStar Group Inc.

Net absorption in South Bay and San Jose was 1.5 million in the fourth quar-ter, according to CoStar. Major tenants like Amazon.com, Nvidia and Samsung signed leases in the area in 2013. —Roland Li

Mesa West Finances San Jose Office Complex Acquisition

MOW EXCLUSIVE

Rio Robles Technology Park

1556 Second Avenue

Icon... continued from page 1

4 | FEBRUARY 28, 2013

Quality People | Quality Processes | Quality RelationshipsTHIS IS THE WALKER & DUNLOP DIFFERENCE

Commercial Real Estate Finance

www.walkerdunlop.com

California loans will be made pursuant to a Finance Lenders Law License from the Department of Business Oversight.

Quality Makes All The

Difference

5 | FEBRUARY 28, 2013

Signature Bank has provided a $12 million acquisition loan to Jem Real-ty Management to help finance its pur-chase of a seven-story office property at 2108-2110 Adam C Powell Boulevard in Central Harlem.

The five-year loan comes with a five-year extension option. The initial interest rate for the first five years is 4.25 percent. Carol Shelby, a managing director in Meridian Capital Group’s New York of-fice, brokered the loan.

Jem Realty acquired the property from New Jersey-based Mitchell Enterprises for $21.5 million on Feb. 18, the same day that the loan from Signature Bank closed, public records show.

The building was completed in 1903

and most recently renovated in 2006. At that time, North Fork Bank provided an $8 million loan to the previous owners.

“The new owners are going to spend money renovating and re-renting the property, which was mostly vacant,” George Klett, Signature Bank’s execu-tive vice president and chairman of its commercial real estate committee, told Mortgage Observer Weekly. “They are very experienced real estate operators, primarily retail guys. It was an opportuni-ty for them, because they own other prop-erties in the area.”

Mr. Klett was featured in the No. 30 slot on Mortgage Observer’s 2014 list of the 50 Most Important People in Commercial Real Estate Finance.

Signature Bank Provides Acquisition Financing for Harlem Office Property

CBRE Secures $20.5M Loan for N.C. Office Portfolio

CBRE Group, Inc.’s debt and structured fi-nance team has arranged a $20.5 million first mortgage from Wells Fargo to refinance Madi-son Park, a 486,000-square-foot, seven-building office portfolio in Winston-Salem, N.C.

CBRE brokered the three-year, floating-rate bridge loan on behalf of LRC Properties, LLC, at a rate of 2.65 percent, Mortgage Observer Weekly can exclusively report.

The sub-50 percent leveraged, nonre-course loan requires interest-only payments and offers “flexible prepayment that allows the borrower to exit after the first year of the loan,” a CBRE spokesperson said in writing. “The loan structure also includes a provision that all outstanding leasing costs will be fund-ed by the lender.”

The loan was facilitated by Jason Gac-cione, the senior vice president of CBRE’s debt and structured finance team in New York, part of the company’s capital markets group, and was co-originated by Keith Brad-dish of NorthMarq. Compton Newman and Hal Kempson of CBRE’s Charlotte, N.C., office provided local market expertise for the transaction.

“LRC has made tremendous headway with their leasing efforts at Madison Park,” Mr. Gaccione said. “As it stands today, the asset is 90 percent leased to primarily investment-grade tenants on a long-term basis. Wells Fargo’s loan capitalizes the borrower’s leas-ing costs and provides attractive prepayment flexibility.”

Madison Park, built from 1983 to 1987, contains seven office buildings, a 1,600-car parking deck and surface parking. Ten-ants in the portfolio’s leased areas include Lowe’s Home Centers, Blue Cross Blue Shield of North Carolina and National General Insurance.

New York-based commercial real estate lender and developer Greystone has part-nered with the private equity arm of Luxem-bourg-based Quilvest & Partners to invest in multifamily markets in the Southeast, Mid-Atlantic and Midwest.

The joint venture is targeting buildings with around 200 units in secondary U.S. markets, ranging from $10 million to $50 million per building. The partnership does not have a set goal of how many buildings it will acquire but plans to invest “hundreds of millions” of dollars, Jeffrey Simpson, the CEO of Greystone’s property development

group, told Mortgage Observer Weekly.It has invested about $75 million to date

in five buildings in North Carolina, South Carolina and Florida. Large institutional lenders financed those deals, Mr. Simpson said. He declined to name those lenders.

The partners plan to find buildings from the 1980s or later that they can renovate by replacing plumbing systems and lights, among other upgrades, in order to raise rents. They are focusing on areas with positive economic indicators such as job growth.

Greystone and Quilvest deliberately

avoided investing in more expensive regions due to heightened competition from oth-er buyers and lower returns. Typical two-bedroom units in the targeted areas rent for $800 to $1,000 per month, Mr. Simpson noted. “These are definitely not luxury de-velopments,” he said. “It’s not a New York or a Miami.”

Greystone will manage the buildings and operate them day to day, while Quilvest will serve as the private equity partner.

Greystone, founded by Stephen Rosen-berg, also has residential projects under con-struction in Brooklyn and Miami. —Roland Li

Greystone and Quilvest Launch Multifamily Investment J.V.

MOW EXCLUSIVE

2108-2110 Adam C Powell Boulevard

6 | FEBRUARY 28, 2013

Interests always aligned…

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ONE FIRM

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7 | FEBRUARY 28, 2013

Walker & Dunlop Refinances California Multifamily Community

Walker & Dunlop has provided $37.6 million in refinancing for a 198-unit apart-ment building in Escondido, Calif. The re-financing is divided between two loans for developer Lyon Communities, which will separately finance the building’s mid-rise apartments and townhomes. The loans were part of Freddie Mac’s Capital Markets Exe-cution Program.

Bryan Frazier of Walker & Dunlop led the loan structuring. The financing will pay off an existing construction loan and re-turn capital to the borrower, said Walker & Dunlop.

The building, known as Latitude 33, includes 92 condos and 116 townhouses. Current units are listed for monthly rents between $1,475 and $2,599.

Homebuilder D.R. Horton previously owned the site, which is near Escondido’s California Culture Center for the Arts. D.R. Horton planned a 122-unit building called the Paramount, but a 2007 fire stalled the project. Lyon bought the property in Sep-tember 2008. The project opened in 2012.

Newport Beach, Calif.-based Lyon Com-munities was founded in 1988. The privately held developer has more than 21,000 units in California, Colorado, Georgia and Florida.

Escondido is a city of about 140,000 peo-ple near San Diego. —Roland Li

Los Angeles-based Canyon Cap-ital Realty Advisors has provided a $55.2 million senior construction loan to an affiliate of Thomas Land and Development, LLC, to finance the fifth phase of the RIM, a nearly 2-million-square-foot power center under development in San Antonio, Texas.

RIM V, due for completion in the second half of 2014, will contain 253,606 square feet of retail space, 91 percent of which is preleased to na-tional and local retail tenants includ-ing PetSmart, Total Wine & More, Toby Keith’s I Love This Bar & Grill and Bowl & Barrel.

The latest development “is a com-pelling investment opportunity for Canyon Realty given the project’s thriving trade area with affluent de-mographics, excellent visibility and access, and a diverse tenant mix of national and local retailers,” said Robin Potts, the director of Can-yon Realty. “Thomas developed the first four phases of the RIM, which have become San Antonio’s premier power center, and we look forward to building on that success with the fifth phase of the center.” A spokesperson for the lender declined to provide the

terms of the loan.RIM V is located in the middle of

the other four phases of the power center. Those retail spaces are ful-ly leased to multiple tenants includ-ing Target, J.C. Penney, Palladium Santikos Theaters, Best Buy, T.J. Maxx, Nordstrom Rack, Ross, Saks Fifth Avenue Off 5th and Lowe’s, among other retailers. The fully fin-ished power center will contain six phases in total. As of now, Canyon Realty is only involved in phase five as a lender.

“We are excited that Canyon Re-alty’s loan enables us to complete the vision of adding new top-tier re-tail tenants to the project,” said Stan Thomas, the founder, chairman and CEO of Thomas Land and Develop-ment. “Canyon Realty brought signif-icant value to the project by moving quickly to structure and to execute the construction loan in a short time frame to meet the needs of the transaction.”

The recent loan from Canyon Re-alty marks the second investment that the Canyon Partners affiliate has made in the Northwest submar-ket of San Antonio within the last three years.

Canyon Capital Lends on Texas Power Center

Work Force Oleg Sabel of the international law firm

Hogan Lovells has joined the New York City firm Otterbourg P.C. as a member of its real estate group. His practice there will focus on the buying, selling and financ-ing of multiple property types, including multifamily residential complexes, office buildings, hotels, health care facilities and retail centers.

Mr. Sabel’s experience and skillset will complement Otterbourg’s banking and fi-nance practice by providing enhanced real estate services to domestic and interna-tional banks, private equity firms, hedge funds and other clients, Daniel Wallen, Otterbourg’s chairman, noted.

“Oleg is a great lawyer with a strong gen-eral real estate practice that is a perfect fit for Otterbourg,” Mr. Wallen said. “Our cli-ents will benefit from his guidance on real estate matters, and his clients will bene-fit from the guidance of our banking and

finance partners. His move illustrates the opportunities that an established midsize firm like ours provides to big firm lawyers.”

Mr. Sabel said he was compelled to make the move due to Otterbourg’s “entrepre-neurial spirit” and the firm’s commitment to client service.

“Otterbourg treats every client like its most important client and has a strong team concept that insures its clients bene-fit from all of the firm’s resources,” he said. “Today, real estate companies and private equity firms are seeking midsize law firms that have the flexibility to grow with them as they expand their real estate investment portfolios. Joining Otterbourg gives me the opportunity to enter into this type of col-laborative relationship with my clients.”

Marcus & Millichap Capital Corpo-ration has promoted six originators in the firm’s Philadelphia, New Jersey and New York offices.

John Banas, Kristopher Wood and

James Conley, of the firm’s Philadelphia office, were promoted to senior directors, while Eric Seidel, of the firm’s New Jer-sey office, was promoted to associate di-rector and Christopher Marks and Kyle Young, of the firm’s Manhattan office, also received promotions.

“These gentlemen are among our stron-gest financing experts,” said John Wil-cox, the vice president of MMCC’s eastern region. “Their collective experience and knowledge make them invaluable not only to MMCC but to our clients across the nation.”

Most recently, Messrs. Banas, Wood and Conley each held the position of direc-tor with MMCC. Messrs. Banas and Wood joined the firm in 2011. Mr. Conley joined in 2007.

Mr. Seidel joined MMCC in 2011 and re-cently held the position of associate. Mr. Marks, previously an associate originator, joined the firm in 2009. Mr. Young, for-merly an associate in Manhattan, joined MMCC in 2012.

8 | FEBRUARY 28, 2013

The Stoler Report-New York’s Business Report

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9 | FEBRUARY 28, 2013

The Takeaway“As large banks prepare to submit stress testing results to their regulators early this year, Trepp has prepared an analysis of the application of the

Trepp Capital Adequacy Stress Test (T-CAST) to banks across the entire size spectrum,” said Matthew Anderson, managing director of Trepp. “The T-CAST results indicate that nearly 9% of US banks would fall below minimum capital thresholds in a severe downturn, thus failing the capital ade-quacy test. There are meaningful differences in the results when sorted by bank size. Small banks failed the test by almost three times the proportion of large banks. Regional differences are also pronounced, with a wide range of results by state. States with a history of bank distress are among the areas with the highest counts and proportions of banks failing the test.”

State FAIL PASS Grand Total

% Fail Rank (%)

IL 64 449 513 12.5% 14

GA 44 172 216 20.4% 2

OK 37 184 221 16.7% 8

FL 36 156 192 18.8% 5

MN 31 308 339 9.1% 24

MO 27 264 291 9.3% 22

TX 25 504 529 4.7% 36

IA 21 285 306 6.9% 33

TN 21 149 170 12.4% 15

KS 20 259 279 7.2% 30

CA 20 193 213 9.4% 21

WI 17 233 250 6.8% 34

NC 13 65 78 16.7% 9

SC 13 56 69 18.8% 4

KY 12 157 169 7.1% 31

AL 12 120 132 9.1% 25

NJ 12 93 105 11.4% 18

PA 11 179 190 5.8% 35

CO 11 80 91 12.1% 16

ND 10 75 85 11.8% 17

WA 10 51 61 16.4% 11

MI 9 113 122 7.4% 29

VA 9 92 101 8.9% 26

OH 8 218 226 3.5% 40

AR 8 108 116 6.9% 32

MD 8 65 73 11.0% 20

State FAIL PASS Grand Total

% Fail Rank (%)

NY 7 150 157 4.5% 37

UT 7 34 41 17.1% 7

NE 6 194 200 3.0% 42

SD 6 59 65 9.2% 23

CT 6 38 44 13.6% 13

OR 6 21 27 22.2% 1

IN 5 123 128 3.9% 38

MT 5 58 63 7.9% 28

MA 3 148 151 2.0% 44

LA 3 136 139 2.2% 43

NM 3 34 37 8.1% 27

AZ 3 15 18 16.7% 9

ID 3 13 16 18.8% 5

NV 2 11 13 15.4% 12

DE 2 8 10 20.0% 3

MS 1 82 83 1.2% 46

WV 1 58 59 1.7% 45

WY 1 30 31 3.2% 41

ME 1 27 28 3.6% 39

HI 1 8 9 11.1% 19

NH 0 19 19 0.0% 47

VT 0 13 13 0.0% 47

RI 0 8 8 0.0% 47

AK 0 6 6 0.0% 47

DC 0 4 4 0.0% 47

Grand Total

581 5925 6506 8.9%

Source:

10 | FEBRUARY 28, 2013

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11 | FEBRUARY 28, 2013

Q+A

Michael McRobertsManaging Director of Prudential Mortgage Capital Company’s Fannie Mae and Freddie Mac Lending Business

Mortgage Observer Weekly: How did you get your start in multifamily lending?

Michael McRoberts: In 1991, after a seven-year career in commercial mortgage banking, I decided to go to business school and complete an M.B.A. After I graduat-ed, I wanted to gain institutional lending experience. Freddie was just getting back into the multifamily lending business, and it looked like a great ground-floor opportu-nity. I was fortunate to be part of that great growth story for 20 years rising to the head of loan production.

What led to you joining Prudential Mortgage Capital Company in Decem-ber 2011?

In 2011, I was ready to take on a new challenge. Prudential looked to me like a tremendous platform with all the tools to be another great growth story in the mul-tifamily agency space. Accordingly, I came on board, and in 2013, we had our biggest year ever in agency lending.

To what extent do you see life compa-nies growing as multifamily lenders this year and next?

Last year, life companies did about $15 billion in total multifamily debt in a mar-ket that’s roughly $130 billion. That’s a big number for the life companies

historically—the biggest they’ve ever com-mitted to the multifamily market. The al-locations are there, life companies are hungry, and certainly Prudential had our biggest year ever in multifamily. But life companies growing much beyond where they performed in 2013—I don’t see that.

Are you seeing more competition be-tween CMBS lenders, banks and life companies to secure multifamily deals in top-tier markets?

Yes. The banks are flushed with capital, and they’re looking for these assets. CMBS was up dramatically in 2013, and I believe it will be up dramatically up in 2014, and that capital source has become more effi-cient from a price perspective. I’ve spoken to several people in New York and oth-er premier markets, and its clear that the conduits are price competitive with the agencies, as well as the life companies and the banks, so you may very well see them competing for top-tier loans as well.

This is a very concerning market from a credit perspective, because you can push as much as you want to push on price, but at some level, you have to stop, and then you start looking at compromising credit in or-der to compete. I think most of the lenders want to be disciplined about their credit underwriting, but in order to win business, they’re going to have to add a year of inter-est only or look more aggressively at cash flows, and you could see some credit dete-rioration as a result.

How does that impact your day-to-day role at Prudential and also Pruden-tial’s position as a multifamily lender?

Prudential Mortgage Capital has always had an eye on credit and a focus on strong underwriting. As a result, the performance of the loans we originate through all of our capital sources has been outstanding, and in general, our loans performed at delin-quency levels well below our peers, so we’ll continue to maintain our credit discipline. We will let the market get away from us if we feel like it is getting too frothy. But we’re going to be smart about it and care-fully pick our spots with the right sponsors and right locations.

Michael McRoberts

321 West 44th Street, New York, NY 10036 212.755.2400

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